DECODING PROFITABILITY

DuPont Analysis of Coolsteel Ltd.

Is Coolsteel’s ROE driven by Profitability, Efficiency, or Leverage?

ROE FY 2025 15.00% up from 11.48% in FY24

EBIT MARGIN 16.00% up from 13.00% in FY24

ASSET TURNOVER 0.80× up from 0.75× in FY24

FINANCIAL SNAPSHOT (₹ CRORE)

Particulars (₹ crore)	FY 2024	FY 2025
Revenue from Operations	8,500	10,000
EBIT	1,105	1,600
Finance Cost	250	300
Profit Before Tax	855	1,300
Tax Expense	132.5	300
Profit After Tax	722.5	1,000
Opening Total Assets	10,666	12,000
Closing Total Assets	12,000	13,000
Average Total Assets	11,333	12,500
Opening Shareholders’ Equity	6,000	6,333
Closing Shareholders’ Equity	6,592	7,000
Average Equity	6,296	6,667

ROE TREND

DUPONT FORMULA: ROE = MARGIN × TURNOVER × LEVERAGE

DuPont Component	FY 2024	FY 2025	What it tells us
Net Profit Margin	8.50%	10.00%	Profitability improved
Asset Turnover	0.75×	0.80×	Asset utilisation improved, but remains relatively low
Equity Multiplier	1.80×	1.88×	Moderate increase in financial leverage
ROE	11.48%	15.00%	Strong overall improvement

WHAT DROVE THE ROE IMPROVEMENT?

ROE increased from 11.48% to 15.00% — a rise of approximately 3.52 percentage points — driven mainly by stronger operating profitability, aided by improved asset utilisation and a modest rise in financial leverage, while a higher tax burden partially offset the gains.

OBSERVATION: IS A 0.80× ASSET TURNOVER WEAK?

Coolsteel’s Asset Turnover is only 0.80×. That means for every ₹1 invested in assets, Coolsteel generates only about ₹0.80 of revenue. At first glance this may appear weak — but that conclusion would be misleading.

Steel manufacturing is capital intensive. Large investments in the following can keep the asset base high:

●  Plant & machinery

●  Steel processing facilities

●  Warehouses

●  Power infrastructure

●  Transportation equipment

●  Technology

Therefore, a lower asset turnover does not automatically mean poor management.

5-STEP DUPONT ANALYSIS

Step	Component	Formula	FY24	FY25	What it indicates
1	Tax Retention Factor	PAT ÷ PBT	84.50%	76.92%	Profit retained after tax
2	Interest Retention Factor	PBT ÷ EBIT	77.38%	81.25%	Operating profit retained after finance cost
3	Operating Profit Margin	EBIT ÷ Sales	13.00%	16.00%	Operating profitability
4	Asset Turnover	Sales ÷ Avg. Total Assets	0.75×	0.80×	Efficiency of asset utilisation
5	Financial Leverage	Avg. Assets ÷ Avg. Equity	1.80×	1.88×	Use of assets relative to equity
	ROE	Step1×2×3×4×5	11.48%	15.00%	Overall return to shareholders

THE STORY OF COOLSTEEL LTD.

PROFITABILITY EBIT margin: 13% → 16% This is the biggest positive signal. Possible reasons: better capacity utilisation, improved product mix, operating cost control, economies of scale, and improved realisation/pricing.

EFFICIENCY Asset turnover: 0.75× → 0.80× The company is still asset-heavy, but it is generating more sales from its asset base.

LEVERAGE Equity multiplier: 1.80× → 1.88× Coolsteel is using somewhat more financial leverage. This helped enhance ROE, but it also introduces additional financial risk.

TAX Tax retention: 84.50% → 76.92% A smaller proportion of PBT was converted into PAT in FY2025, so taxation partially offset the improvement coming from operating performance.

MANAGEMENT CONCLUSION

Coolsteel Ltd.’s ROE increased from 11.48% to 15.00% in FY2025. The improvement was primarily supported by stronger operating profitability, reflected in the increase in EBIT margin from 13% to 16%. Asset turnover also improved from 0.75× to 0.80× despite Coolsteel’s capital-intensive business model. A moderate increase in financial leverage further supported ROE. However, management should monitor leverage carefully and ensure that the improvement in ROE is increasingly supported by operating performance rather than debt.